Allergan will cut about 5 percent of its workforce, as the company looks to cut costs due to increased pipeline competition and loss of exclusivity on some products.
Allergan will cut 1,000 positions, about 5 percent of its workforce, as the company looks to cut costs due to increased pipeline competition and loss of exclusivity on some products the company announced in a filing with the U.S. Securities and Exchange Commission.
The cuts are not unexpected. The company hinted in November that major changes were coming to its operations following the release of its third-quarter reports. Allergan said it planned to cut costs.
“I hate to say we know how to take costs out of the business, but we do, and we know how to do that in a way that protects the long-term growth drivers,” Allergan Chief Executive Officer Brent Saunders said in November when the company first announced the coming changes.
Part of that cost-cutting measure will be the elimination of about 1,000 jobs and approximately 400 open positions, according to this week’s SEC. Allergan said the cuts will primarily be in commercial areas where the company is facing a loss of exclusivity.
One of those areas of exclusivity that is ending is its eye treatment Restasis. In 2016, Restasis generated about $1.5 billion in revenue, but the drug is losing patent protection and opening it to competition from generics manufacturers. In October, a federal judge in Texas invalidated four key patents for Restasis on scientific grounds that cleared the way for Mylan to pursue a generic of the drug. Allergan is appealing the ruling.
Allergan had sought to protect the patents through the use of a legal loophole to sell its drug off to a Native American tribe that had been recognized as a sovereign nation. In September, Allergan engaged with the Saint Regis Mohawk Tribe in New York. Allergan hoped the tribe’s sovereign immunity would shield the drug from Inter Partes Review (IPR) challenges to its patents on the blockbuster eye drug Restasis. That move drew the ire of lawmakers, including U.S. Sen. Claire McCaskill, a Missouri Democrat, who filed legislation that would oppose the idea that the Mohawk sovereignty would protect the patents.
As a result of the job cuts, Allergan said it will incur related costs of approximately $125 million, mostly due to severance packages that will be offered to employees. The $125 million will mostly be recorded in the fourth quarter that ended Dec. 31, the company said.
In addition to the jobs cuts, Allergan said it will reduce costs through “non-headcount spending rationalization.” When combined with the layoffs and other internal changes, Allergan said it anticipates related expenses of about $300 to $400 million.
Since July of 2017, shares of Allergan have plunged about 20 percent, from $256 to this morning’s price of $169.34 as of 9:55 a.m.
